The Impact of Taxes on Capital Formation in Tanzania

Abstract

This paper investigates the impact of taxation on capital formation in Tanzania through application of Autoregressive distributed lag (ARDL) model, using the data sourced from National Bureau of Statistics (NBS) and Tanzania Revenue Authority (TRA) for 1966 – 2019. The results show that corporate income tax has a negative impact on capital formation in both the short-run and long-run, the exception being the magnitude. The paper recommends the need to review the taxation policies so as to attract more investment in the country in order to foster economic growth. This, among others, can be done through putting more emphasis on the implementation of the already established Blueprint for Regulatory Reforms to Improvement of Business Environment that aims at improving business environment climate in the country. Additionally, there is a need to keep encouraging more private sector participation in the economy, especially in those sectors which are not considered as a high priority sectors, as well as encouraging the Public Private Partnership (PPP) initiative.